President Macron announced on November 7, 2022 during C0P 27 in Sharm el-Sheikh in Egypt a initiative to protect the planet's "vital stores of carbon and biodiversity", such as ancient forests, peatlands or mangroves.
A proposal for “partnerships for positive conservation” is made to the countries that host such reserves, based on “political and financial contracts” that would allow them to guarantee their conservation. For this, “innovative financial mechanisms” will be studied and it is notably planned that a “high-level group will be responsible for making recommendations on the creation of a market for biodiversity credits”.
If the universe of different types of carbon credits is fairly well known, the situation is more vague with regard to “biodiversity credits”. Schematically, two cases can be distinguished: on the one hand, systems, regulatory or voluntary, of biodiversity offsetting with offset, around “no net loss” principle associated with the sequence avoid-reduce-compensate (ERC). On the other hand, credits not intended for offsetting, modeled on voluntary carbon credits, which are above all financing vehicles to finance actions in favor of biodiversity.
As the COP15 dedicated to biodiversity is just opening in Montreal, let's try to see more clearly about these two types of complementary systems, their advantages and their limits.
Compensate if cannot be avoided and reduce
Mitigation and compensation policies aimed at objectives such as no net loss or net gain of biodiversity are already well established in a number of OECD countries.
Some countries have structured the implementation of their system in the form of standardized exchange units: “credits” or “biodiversity offsets”. Here are some key features of how these systems work: Generally based on "no net loss" or "net gain" objectives, they use different scenarios of what would happen business-as-usual. The most advanced systems are regulated rather than voluntary, ie the law requires ecological compensation for impacts on biodiversity.
Developers (public and private) having negative consequences on biodiversity must apply the ERC mitigation hierarchy. If significant residual impacts persist despite this, then they must be compensated. This can involve the restoration or protection of other sites – according to equivalence rules to be established. The developer can carry it out himself if he has control of the land in the places concerned – otherwise, compensation operators take care of it.
Measuring the loss of biodiversity (Arte Découverte, June 21, 2021).
When these measures are implemented in advance, in anticipation of demand from developers, we speak of "compensation by supply": “clearing banks” play a pivotal role by issuing different types of credits as offsets are made. This model makes it possible to bring together those of several developers in the same place, with possible ecological continuity between the zones.
What is exchanged between developers and offset operators are “debits” (biodiversity losses caused by developers) and “credits” (biodiversity gains produced by operators) of biodiversity. These are placed in ecological equivalence: (species; species or habitat; habitat) thanks to a common unit of account and exchange rules. These credits are specific: each category of credit can only compensate for losses caused to a similar ecosystem (a "forest" credit cannot be used to compensate for a loss of wetland, for example).
The complex nature of biodiversity and requirements for ecological equivalence mean that trading is generally only permitted on a local scale.
However, ecological equivalences are difficult to establish, especially when the environments are very specific and the species sheltered are rare or remarkable. Unlike carbon, there is no real "metric" for biodiversity, and the question is whether the equivalences should be based on the number of species, the habitats of the species, the functionalities of an ecosystem or the ecosystem services.
The ERC sequence does not fulfill its objectives: the pressures for the construction of roads, mines or dams, etc. are multiple, and "avoidance" is an option that is not often chosen. In France, the drafting of the text of the “ERC Doctrine” is indicative of this embarrassment:
“When, in the state of available scientific and technical knowledge, ecological equivalence cannot be obtained […] the project, as it stands, cannot, in principle, to be allowed. »
Much of the offsets are through land purchases, conservation easements or payments for environmental services (PES), and are based on "destruction avoided", which are supposed to be demonstrated by reference (counterfactual) scenarios often unverifiable, which refers to the well-known additionality problem with carbon credits : if the scenario business-as-usual predicts high biodiversity losses in the offset area, a lesser loss will be presented as a successful offset, even if there is a net loss.
Positive Impact Certificates
Biodiversity credits, on the other hand, are modeled on carbon credits. They are not intended to compensate for biodiversity loss, but to be financing instruments that can be traded on a secondary market, and generally designed with a view to “results-based payments”.
The think tank International Institute for Environment and Development proposes the term “biocredits” to distinguish these from the “biodiversity offsets” mentioned above. It would be clearer to give up the term “credits” to speak of “positive impact certificates”.
They would be acquired within the framework of corporate CSR policies or biodiversity financing by Foundations or other institutions, without giving rise to a "debit": while the carbon credit is an emission permit, a certificate of impact does not give rise to the right to destroy biodiversity. It is a logic of contribution to the collective effort and not of compensation.
Forests in Malaysia or “Rhinos credits”
Initiatives of this type exist. We can cite the example of the Malua Biobank in Sabah (Malaysia), launched in the late 2000s at the initiative of the forest service, where a restoration or protection "Biodiversity Conservation Certificate" is issued for 100 m2 of restored/protected forest ecosystem and sold at a price of 10 dollars. The buyers were the oil palm companies operating in Sabah.
Rhino credits are intended to encourage population growth of this endangered species. Kdsphotos/Pixabay, CC BY-NC-ND
More recently, “Rhinos credits” have been proposed in Southern Africa. The principle is to solicit impact investors to buy credits associated with the growth of the rhino population.
If the targets are met, then traditional funders repay the impact investors for the credits acquired (or part of the costs if the results are not achieved).
Certificates should not replace the ERC
More generally, these certificates have three objectives: to constitute a monetizable expression of biodiversity gains (or significant reductions in losses) due to an action or project; be, for the initiators of the projects, a vehicle for providing funding; and serve as support for financing actions and evidence of impact from investors or other institutions wishing to demonstrate a commitment to biodiversity.
Their quality will depend on the consistency of the actions carried out by the entities issuing certificates. A company should first rigorously apply the ERC sequence before being allowed to issue certificates. Activities allowing a “net gain” or an absolute reduction in biodiversity losses should be prioritized over those aiming for “avoided losses”, often based on unverifiable scenarios of increasing losses “in the absence of a project”.
The certificates must contribute to achieving a desired state of biodiversity in a territory, not to finance business-as-usual attenuated.
Creation of a secondary market?
There remains the question of a secondary market, ie the addition of a transferable financial asset dimension to the impact certificates.
Such a market is only justified if it leads to increasing the income of the issuer of the certificate – the project, the institution or the company – on the occasion of the capital gains realized during the resale of certificates by various intermediaries. .
With blockchain technology, it is possible to organize a royalties system to remunerate the initial issuer during each transaction, as is done with NFTs (non-fungible token).
In this case, a market for biodiversity certificates would undoubtedly contribute to significantly increasing the income of operators acting in favor of biodiversity.